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Cooperation in SMEs Between Korea and Latvia

Forum on the 20 th Anniversary of Diplomatic Ties Between Korea and Latvia. Forum on the 20 th Anniversary of Diplomatic Ties Between Korea and Latvia. Cooperation in SMEs Between Korea and Latvia. Dr. Oh Dong Yoon. Korea Small Business Institute. Contents. Introduction. Cooperation.

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Cooperation in SMEs Between Korea and Latvia

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  1. Forum on the 20th Anniversary of Diplomatic Ties Between Korea and Latvia Forum on the 20th Anniversary of Diplomatic Ties Between Korea and Latvia Cooperation in SMEs Between Korea and Latvia Dr. Oh Dong Yoon Korea Small Business Institute

  2. Contents Introduction Cooperation Strategy 1

  3. Introduction Development History Profile 2

  4. Development: 1st Stage History of Korean SMEs 1st Stage (1960s~Mid 1970s) • Business consolidation for export promotion •  Inactivate SMEs • SME manufactured daily items  key role in light industries • Economies of scale pursued for export growth larger businesses  SME less active 3

  5. Development: 2nd Stage History of Korean SMEs 2nd Stage (Late 1970s~1980s) • Policies for the development of heavy / chemical industry and quantitative growth of SME • SME produced parts and materials consumed in the heavy and chemical industry, replacing imported parts and materials (localization) • Korean government active promotion policies to nurture SMEs active start-up and facility investment by SMEs rapid growth of SME 4

  6. Development: 3rd Stage History of Korean SMEs 3rd Stage (Late 1970s~1980s) • SME restructuring and Improved responsiveness to market opening • SMEs dealt with adjustments to rapidly changing industry environment • Policy shift: protect and support SMEs  induce competition and cooperationsupport self-reliant and innovate SMEs 5

  7. Power of SMEs Profile of Korean SMEs Power of 99 and 87(2009) % of number of SMEs(to the total number of enterprises): 99.9% % of number of employees in SMEs(to the total number of employees in the whole enterprise): 87.4% % of those were 99.3% and 75.1%, respectively in 1994 Source: 1) Korea; 2009 Profile of SMEs, K-biz (2011). 2) ( ) is in 2008 figures for EU SMEs, Financial sector is excluded. Annual Report on EU SMEs, Eurostat (2009). Role of creating jobs and keeping vitality of the economy 6

  8. Subcontracting Activities Profile of Korean SMEs SMEs are heavily engaged in subcontracting activities More than 50% of SMEs are engaged in subcontracting relationship while only 30% of European SMEs are Most subcontractors are 1st tier subcontractors (68.3%), while % of 2nd tier and 3rd tier subcontractors are 24.7% and 7.0% Source: 1) Korea; 2009 Profile of SMEs, K-biz (2011). 2) EU 27: EU SMEs and Subcontracting, EIM (2009). There is a widening gap between L-E and SME 7

  9. Collaboration Scheme Profile of Korean SMEs The widening gap results from traditional growth model Export oriented, emphasizing the role of Large enterprise Performance of the model has been quite successful Source: 2009 Profile of SMEs, K-biz (2011). SMEs are always standing on the weak side of the value chain Pressure on margins exerted by contractors are common phenomena 8

  10. New Development Model Profile of Korean SMEs Korea began to aware of the importance of collaboration As a ‘New Development Model’ for sustainable growth Change of paradigm of competition • Shift of paradigm from competition between companies to competition between company network • Cooperation of suppliers are needed to secure competitiveness of Korean enterprises Distribution improvement and social cohesion • Foundation for a society where fair competition, equal opportunity, and sharing of fruit according to their contribution can be realized Growth engine as a booster of vitality of economy • Boost vitality of business ecosystem to create sustainable growth engine of the economy • Vitality of SMEs is the key to the creation of new jobs 9

  11. Role of SMEs Profile of Korean SMEs Make an effort reform their entrepreneurship • From ‘old habit of relying on government support’ to ‘voluntary/ ongoing innovation to reform their entrepreneurial spirit’ • Transparency in accounting and business practice, compliance, etc., • Innovation for technology and productivity upgrading, etc., Provide a better quality working condition • Invest in a higher value-added industry (green, higher value-added parts and components) • Improve work environment, invest to develop a fine training/education program for employees • Need to provide an environment to attract young people Strengthen the business network among SMEs • Information sharing (technology, market, etc.,), production sharing 10

  12. Role of Government Profile of Korean SMEs The goal of government To induce voluntary involvement of entities in the collaboration scheme, but not in supporting the scheme directly To provide legal/administrative support to induce the scheme to be in effect Protection of SMEs’technology • Prohibit on-site visit/request of cost & technology information without written notification • Impose heavy compensation load or responsibility for damage caused by illegal dispossession/appropriation of technology Others Extended application of ‘subcontractinglaw’ to the lower tier subcontractors Intensify surveillance on unfair business practice of large distributors 11

  13. Cooperation Globalization Advantage & Disadvantage 12

  14. Limitation of Collaboration Reason for Globalization However, Korea has been striving to encourage collaboration scheme between large enterprise and SMEs . And, Korean government was very cautious of selecting implementation method Again, the core spirit of this scheme is voluntary involvement of entities of the scheme, and the role of government should be restricted as a mere supporter It seems like that the scheme has been quite successful so far However, there could be some side effects in the future The best way To break off subcontract relationship with L-E SMEs cannot survive in domestic market 13

  15. Globalization to Survive Obstacles to Globalization Obstacles to Globalization of SMEs Source: Survey: Globalization, K-biz (2010). 14

  16. Cooperation bet. Korea & Latvia SMEs in Korea Advantage Vs. Disadvantage Advantage To use various SME policy instruments To advance to other countries, especially ASEAN by FTA To advance to US, China and Japan by FTA in the near future Disadvantage Korea SMEs are not willing to cooperate with foreign companies because of lack of experience Too high proportion of heavy and chemical industry Source: KSBA. European Commission, SME Performance Review. 15

  17. Strategy Public Procurement Purchasing Assurance Who Will You Call? 16

  18. Public Procurement Market Public Procurement Purchasing SME products by public procurement Since 1981 this program has been ongoing to support the stable management for SMEs market expansion Korea Public Procurement Market(2009) • Size : about 103 billion in US dollars • (c.a 11.5% of GDP) • Amount of SME products purchased record by government institutions : about 62 billion in US dollars • (c.a 60% of total public procurement) Source: KSBA 17

  19. Public Procurement Market Public Procurement Providing an advantageous position to SMEs • Under US $0.18million contracts competes only between SMEs (Large enterprises are excluded) • Restricting joint bidding between large enterprises Introducing ‘excellent joint brand’ products system • The product which is eligible to improve its quality & technological development sets for the ‘excellent joint brand’ cooperated with more than 5 SMEs • Help to find public market through giving advantages not through bidding but with special appointment when public purchasing 18

  20. New Technology Purchasing Assurance Purchasing Assurance • Defense Ministry, KEPCO (Korea Electric Power Corporation), KOGAS (Korea Gas Corporation), and Korea Railroad Corporation etc. • To develop a new technology with the assurance that they will purchase the technological products. • Under this program, the SMBA finances the technological development of SMEs, while public institutions purchase the products for a certain period of time. • As of 2007, about 55 institutions are participated as purchasing • corporations, and the SMBA has supported ca. 170 technology • development projects (budget ca. US $ 30 million) and plans to expand • the participation of government agencies, public institutions and • private businesses in this program. • 75% of entire R&D expenditure (max. US $ 100,000, 2 years) is granted 19

  21. Who Will You Call? Contact Korea Federation of Small and Medium Business www.kbiz.or.kr The Korea Chamber of Commerce and Industry www.korcha.net Korea Trade-Investment Promotion Agency www.korcha.net Small & Medium Business Cooperation www.sbc.or.kr 20

  22. MOU Contact When you contact to those organizations you will find some difficulties Memorandum of Understanding between organizations Exchange Program conducted by organizations Exhibition, Seminar, Forum etc. Cooperation between SMES 21

  23. Thank You

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